Market News Report - 29 September 2024Due to an unsurprising rate hold, the Aussie was among the top-performing currencies in the major forex markets. Meanwhile, the dollar fell against AUD and several other currencies as the recent Fed cut continues to downplay the greenback.
Have any fundamental outlooks changed for this week compared to our last report? Let's find out.
Market Overview
Below is a brief technical and fundamental analysis breakdown for all major currencies.
US dollar (USD)
Short-term outlook: bearish.
Unsurprisingly, the Fed's recent historic 50 basis points (bps) rate cut is still a hot topic, keeping the bearish bias firmly in place. The central bank has signalled the potential for two 25 bps drops by the end of this year.
In line with this sentiment, the Fed also revised 'dots' lower, Gross Domestic Product (GDP) and unemployment higher.
Negative expected jobs and ISM services data coming this week will add further to the bearish pressure.
Despite these fundamentals, the DXY has yet to break the support area at 100.617, instead ranging around this level for quite a while now. So, be mindful of a potential technically-driven retracement.
Meanwhile, the key resistance is far away at 107.348, which will remain untouched for some time.
Long-term outlook: weak bearish.
Markets anticipate rate cuts before the year ends, with the Fed keen to harness a soft landing. Also, any data on weakened jobs would be another bearish driver for the dollar.
However, any potential strength in upcoming GDP (Gross Domestic Product) and jobs would make rate cuts less urgent, allowing for a USD retracement.
Euro (EUR)
Short-term outlook: weak bearish.
As usual, the STIR (short-term interest markets) were predictably accurate as the European Central Bank (ECB) cut the interest rate a few weeks ago. While 'being mum' about forward guidance, they revised core inflation projections higher.
Also, the past week saw weaker economic data across various European nations. Finally, short-term interest rate (STIR) markets have indicated a 93% chance of a rate cut in October.
Meanwhile, the chart tells a slightly different story. After recently breaking a major resistance, the next target is 1.12757. Meanwhile, the key support area lies far below at 1.07774.
Long-term outlook: bearish.
After a long period, we have changed the long-term bias to 'bearish' (from 'weak bearish'). The ECB has yet to commit to a specific future path with the interest rate for some time.
Due to lingering concerns over services inflation, a rate cut in October has become more likely than before. There is a 7% chance (down from 67% of a hold (according to STIR markets). All of this accents the bearish bias.
British pound (GBP)
Short-term outlook: bearish.
The Bank of England (BoE) kept the interest rate steady in its meeting. Still, the language indicates that they need to be “restrictive for sufficiently long.” Early last week, the central bank's higher-ups stressed "a gradual need" to cut rates.
As with the ECB, the central bank's current key theme is fighting persistent inflation in the United Kingdom. So, it makes more sense to be dovish than hawkish. Expect any shocks in inflation (or other data like labour) to send the pound lower.
Like the euro, the British pound has been saved by dollar weakness on the charts. However, it is more bullish. We must go onto the weekly chart to see the next resistance target at (1.34825).
On the other hand, the nearest key support is far away at 1.26156.
Long-term outlook: weak bearish.
Sequential rate cuts by the BoE may soon be a reality. Also, expect any weak CPI, labour, and GDP data to back up the bearish bias. However, the central bank hopes for lower service inflation, which may provide relief.
Another interesting point is the latest CFTC (Commodity Futures Trading Commission) report, showing that GBP longs have been stretched to the upside. So, bullishness should be limited at some point.
Japanese yen (JPY)
Short-term outlook: bullish.
The primary bullish catalyst is the Bank of Japan’s (BoJ) recent decision to hike the interest rate. STIR markets expect a hold (99% probability) at the next meeting but a hike at the start of next year.
Governor Ueda of the BoJ noted that despite domestic economic recovery, recent exchange rate movements have reduced the upside risk of inflation. All of this backs up the potential for a rate hold or hike.
USD/JPY has long been bearish, recently surpassing (but not breaking with confidence) the major resistance at 140.252. Meanwhile, the major resistance (at 161.950) is too far for traders to worry about.
Long-term outlook: weak bullish.
Lower US Treasury yields are one potential bullish catalyst for the yen (the opposite is true). Inflation pressures and wage growth would also provide upward momentum. We should also consider that the dovish tendencies of other major central banks and worsening US macro conditions are JPY-positive
Still, as a slight downer, near-term inflation risks subsiding (according to the BoJ) reduce the urgency for a rate hiking cycle.
Australian dollar (AUD)
Short-term outlook: weak bullish.
The Reserve Bank of Australia (RBA) kept the interest rate unchanged during the Sept. 24 meeting. They further stated that they "did not explicitly consider rate hikes" for the future, which is a marginally dovish statement.
The Aussie remains sensitive to China’s recent economic woes, especially with declining iron ore prices from the country’s steelmakers. As always, it depends on drops or rises in economic data like GDP, inflation and labour.
The Aussie market has risen noticeably of late, having exceeded the recent resistance level at 0.68711. However, as it has yet to break the level confidently, we need to see how it behaves near the latter.
Meanwhile, the major support level is down at 0.63484.
Long-term outlook: weak bullish.
The RBA has certainly changed their tune from hawkish to slightly hawkish/dovish. Overall, it's crucial to be data-dependent with the Aussie, especially with core inflation as the RBA's key focus area.
However, the Australian dollar is pro-cyclical, so it is exposed to economic growth in other countries.
New Zealand dollar (NZD)
Short-term outlook: weak bearish.
In its latest meeting, the central bank's dovish stance (where it cut the interest rate) puts the Kiwi in a 'bearish bracket.'
Furthermore, the Reserve Bank of New Zealand (RBNZD) also revised cash rate projections lower, which signals a dovish move. The markets see a 70% chance of an 0.5% rate cut next month.
The Kiwi has recently breached a major resistance at 0.62220. While the next target is at 0.63696 (where it is very close to hitting), the latter area is still worth considering.
Conversely, the major support is at 0.58498, an area which it is unlikely to test soon.
Long-term outlook: weak bearish.
In its latest meeting, the central bank's dovish stance (where it cut the interest rate) puts the Kiwi in a 'bearish bracket.'
However, as a risk-sensitive currency like the Aussie, any growth data in China could trigger bullishness for NZD. So, traders should be data-dependent.
Canadian dollar (CAD)
Short-term outlook: bearish.
The Bank of Canada (BoC) recently dropped the interest rate to 4.25%, as anticipated by the markets for some time. Further cuts in the next few meetings are on the cards (with a 57% chance of a 50bps cut next month), with the long-term target being 3%.
Unemployment, weak economic growth, and mortgage stress are the key drivers for this dovishness.
The CAD continues to strengthen mildly due to USD weakness. It now looks to test the next major support target at 1.33586, while the major resistance is far ahead at 1.39468.
Long-term outlook: weak bearish.
Expectations of a rate cut remain the focal point. Governor Macklem himself stated a while ago that it's reasonable to expect more cuts in the future. Any big misses in the upcoming data for GBP, inflation, and GDP will probably boost the chance of a rate cut next month.
Also, mortgage stress remains a major factor in this interest rate policy, and the BoC will have to cut rates to alleviate it.
Expect encouraging oil prices, along with general economic data improvement, to save the Canadian dollar's blushes.
Swiss franc (CHF)
Short-term outlook: bearish.
STIR markets were, as usual, correct in their 43% chance of a 25bps rate cut (from 1.25% to 1%) this past week. In the Sept. 26 meeting, the Swiss National (SNB) indicated its preparedness to intervene in the FX market and further rate cuts in the coming quarters.
Still, the Swiss franc can strengthen during geopolitical tensions, such as a worsening Middle East crisis.
We are seeing a clear range on USD/CHF in a strong bear move. So, let's see which side the market is going to incline more towards going forward (although it looks more south than north).
The major support level is closer at (0.83326), while the major resistance level is far higher at 0.92244.
Long-term outlook: weak bearish.
The bearish sentiment remains after the last SNB meeting, while inflation is being tamed with lower revisions. We should also remember that the SNB's intervention prevents the appreciation of the Swiss franc.
On the flip side, 'safe haven flows' and geopolitical risks can be positively supportive for the currency. As with other central banks, inflation is a crucial metric in the SNB's policy rates.
Conclusion
We have kept our fundamental outlooks the same, except for the long-term outlook on the euro. Anyone trading the latter in the coming weeks should bear this in mind. Besides the US-related news, this week isn't filled with high-impact economic events, meaning less volatility.
Still, hope for the best and prepare for the worst. This report should help you determine your bias toward each currency in the short and long term.
